Second Amendment to Loan and Security Agreement



 EXHIBIT 10.9 
  
 SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT 
 BY AND BETWEEN 
 CONGRESS FINANCIAL CORPORATION (FLORIDA) 
  
 AND 
  
 DRUGMAX, INC., TOGETHER WITH ITS SUBSIDIARIES, 
 VALLEY DRUG COMPANY, VALLEY DRUG COMPANY SOUTH, 
 AND DISCOUNT Rx, INC. 
  
         THIS SECOND AMENDMENT TO LOAN AND SECURITY
AGREEMENT (this “Amendment”) is entered into effective as of the 31st day of March, 2004 (the
“Effective Date”), by and among DRUGMAX, INC., a Nevada corporation (“Borrower”), (together with its subsidiaries, VALLEY DRUG COMPANY, an Ohio corporation, VALLEY DRUG COMPANY SOUTH, a Louisiana corporation, and DISCOUNT Rx,
Inc., a Louisiana corporation, also the “Borrower”), and CONGRESS FINANCIAL CORPORATION (FLORIDA), a Florida corporation (“Lender”). 
  
 W I T N E S S E T H : 
  
         WHEREAS, Borrower and Lender heretofore entered into that certain Loan and Security
Agreement dated effective April 15, 2003 (the “Loan Agreement”) pursuant to which Lender agreed to make loans and provide other financial accommodations to Borrower; and 
  
         WHEREAS, Borrower and Lender entered into that certain First Amendment to Loan and Security
Agreement dated effective August 19, 2003 (“First Amendment”) pursuant to which certain changes were made to the Loan Agreement including changes to the EBITDA financial covenant; and 
  
         WHEREAS, Borrower and Lender have now agreed
that certain additional changes be made to the Loan Agreement including changes to the EBITDA financial covenant, addition of a limitation on capital expenditures, a minimum availability covenant and a modification to Eligible Accounts and Lender is
willing to agree to such changes, subject to the terms and conditions set forth herein. 
  
         NOW, THEREFORE, for and in consideration of the above premises, the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt whereof is hereby
acknowledged, Borrower and Lender agree as follows: 
  
         1. Definitions. All capitalized terms contained herein shall have the meanings assigned to them in the Loan Agreement unless the context herein 







 otherwise dictates or unless different meanings are specifically assigned to such terms herein. 
  
         2. Particular Amendments to Loan
Agreement. The Loan Agreement is hereby amended as follows: 
  
                         (a) Change to Subsection 1.19. Subsection 1.19 of the Loan Agreement is hereby amended to
read in its entirety as follows: 
  
 1.19
“EBITDA” shall mean Borrower’s net income (loss) on a consolidated basis for any accounting period (excluding to the extent included therein any extraordinary and/or one time or unusual and non-recurring gains or any non-cash losses),
after deducting all charges which should be deducted before arriving at the net income (loss) for such period, plus (i) the amount of the provision for federal, state and local income tax for such period, plus (ii) the amount of interest expense
during such period for indebtedness for borrowed money, plus (iii) the amount of the provision for depreciation and amortization for such period determined in accordance with GAAP and, in the case of amounts described in clauses (i), (ii) and (iii),
only to the extent deducted in determining net income for such period. 
  
                         (b) Change to Subsection 1.20(b). Subsection 1.20(b) of the Loan Agreement is hereby
amended to read in its entirety as follows: 
  
 (b) such
Accounts are (i) neither unpaid more than thirty (30) days after the due date, nor more than sixty (60) days after the date of the original invoice for them, provided however, that (ii) notwithstanding subsection (i) hereof (A) the
Accounts as specifically identified by Borrower as subject to net 30 day terms, shall be considered Eligible Accounts so long as such Accounts are not unpaid more than sixty (60) days after the due date nor more than ninety (90) days after the date
of the original invoice for them and otherwise meet the criteria for Eligible Accounts set forth in this Subsection 1.20, and (B) as specifically approved on a case by case basis by the Lender in the Lender’s sole discretion, the Accounts
subject to extended dating terms beyond 30 days but not to exceed thirteen (13) months if in existence on the date hereof, or not to exceed nine (9) months if created hereafter, shall be considered Eligible Accounts so long as such Account is not
unpaid for more than thirty (30) days after the due date of the original invoice and which in the aggregate do not exceed $1,000,000 at any time; provided Borrower specifically request approval for each such Account in writing, in form and
substance satisfactory to Lender, including the specific terms, the reason for the extended terms (such as an initial stocking order to a new customer or a new store opening of an existing customer) and provides appropriate credit history

  

 2 








 and/or financial information on the Account as may be requested by the Lender. 
  
                         (c) Change to Subsection 9.18. Subsection 9.18 of the Loan Agreement is hereby amended to
read in its entirety as follows: 
  
 9.18
EBITDA. Borrower shall not, for any period set forth below (each a “Test Period”), permit its cumulative EBITDA to be less than the amount set forth opposite such Test Period: 
  

			
	 Test Period
	  	EBITDA
		
	 4/1/03 – 3/31/04
	  	$1,650,000
	 7/1/03 – 6/30/04
	  	$1,250,000
	 10/1/03 – 9/30/04
	  	$1,400,000
	 1/1/04 – 12/31/04
	  	$1,550,000
	 4/1/03 – 3/31/05
	  	$1,800,000
	 7/1/04 – 6/30/05
	  	$1,800,000
	 10/1/04 – 9/30/05
	  	$1,800,000
	 1/1/05 – 12/31/05
	  	$2,000,000
	 4/1/04 – 3/31/06 and thereafter
	  	$2,000,000

  
                         (d) New Subsection 9.23. A new subsection 9.23 shall be added to the Loan Agreement to
read in its entirety as follows: 
  
 9.23
Minimum Excess Availability. Borrower shall maintain minimum Excess Availability in the amount set forth below at all times during the period indicated: 
  

			
	 Amount
	  	Period
		
	 (i) $100,000
	  	from May 1, 2004 to and including
May 7, 2004
	 	  	 
	 (ii) $200,000
	  	from May 8, 2004 to and including
May 14, 2004
	 	  	 
	 (iii) $300,000
	  	from May 15, 2004 to and including
May 21, 2004
	 	  	 
	 (iv) $400,000
	  	from May 22, 2004 to and including
May 28, 2004
	 	  	 
	 (v) $500,000
	  	from May 29, 2004 to and including
September 30, 2004
	 	  	 
	 (vi) $700,000
	  	from October 1, 2004 to and including December 31, 2004
	 	  	 
	 (vii) $900,000
	  	from January 1, 2005 to and including March 31, 2005
	 	  	 
	 (viii) $1,000,000
	  	from April 1, 2005 to and including April 15, 2006

  

 3 








                         (e) New Subsection 9.24. A new subsection 9.24 shall be added to the Loan Agreement to
read in its entirety as follows: 
  
 9.24
Limitation on Capital Expenditures. Borrower shall not incur expenditures for fixed or capital assets or improvements, or for replacements, substitutions or additions thereto, which have a useful life of more than one (1) year, including but
not limited to, the direct or indirect acquisition of such assets and obligations under capital leases incurred in respect of such fixed or capital assets during such period which exceed $400,000 in the aggregate, in any fiscal year, beginning on or
after April 1, 2004, during the term of this Agreement. 
  

	        3.	 	Amendment Fee. Borrower shall pay to Lender as an amendment fee the amount of $25,000, which shall be payable upon execution of this Amendment by the Borrower.


  

	        4.	 	Validity of Documents. The Financing Agreements as hereby amended are valid, in full force and of full legal effect, and are enforceable in accordance with their terms. There
are no known defenses, counterclaims, offsets, demands or claims that Borrower has in connection with any of the Loans or any of the Financing Agreements that in either such case could be asserted to reduce or eliminate all or any part of
Borrower’s obligations under the Financing Agreements or that could be asserted to mitigate or excuse Borrower’s defaults in payment or performance of the Obligations. 

  
         4. Ratification. Borrower and Lender
confirm, ratify and approve all of the terms, covenants and conditions as are expressly amended in this Amendment. Borrower further restates, ratifies and confirms as accurate all its respective warranties and representations set forth in the Loan
Agreement, as amended by the First Amendment. 
  
         6. No Novation. Except as modified or amended herein, no other term, covenant or condition of the Loan Agreement, as amended by the First Amendment, shall be considered modified or
amended, and this Amendment shall not be considered a novation. 
  

 4 








 IN WITNESS WHEREOF, Lender and Borrower have caused these presents to be duly executed as of the day and
year first written above. 
  
 BORROWER

  
 DRUGMAX, INC. 
  
 By: /s/ Jugal K.
Taneja                 
 Name:
Jugal K. Taneja                 
 Title: Chairman & CEO               
  
 VALLEY DRUG COMPANY 
  
 By: /s/ Ronald J. Patrick                

 Name: Ronald J.
Patrick                 
 Title:
CFO                                      

  
 VALLEY DRUG COMPANY SOUTH 
  
 By: /s/ William
LaGamba                 
 Name:
William LaGamba                 
 Title:
CEO                                       
  
  
 DISCOUNT Rx, INC. 
  
 By: /s/ William
LaGamba                 
 Name:
William LaGamba                 
 Title:
CEO                                       
  
  
 LENDER 
  
 CONGRESS FINANCIAL CORPORATION 
 (FLORIDA) 
  
 By: /s/ Pat
Cloninger                         
 Name: Pat
Cloninger                         
 Title: Vice
President